In the UK, the first £30,000 of genuine redundancy pay is tax-free. Anything above £30,000 is taxed as income at your normal rate, but you don’t pay employee National Insurance on it. Some parts of a leaving package are always fully taxable, whatever the amount: payment in lieu of notice (PILON), holiday pay, bonuses and your final salary.
If you want a quick number first, use our free UK redundancy pay calculator and then come back here to see how much of it you’ll actually keep.
What counts as redundancy pay?
Redundancy pay is a one-off payment you receive because your job no longer exists. It comes in two forms:
- Statutory redundancy pay – the legal minimum. You qualify after 2 years of continuous service. You get half a week’s pay for each full year worked under age 22, one week’s pay for each year from 22 to 40, and one and a half weeks’ pay for each year aged 41 or over. From 6 April 2026, weekly pay is capped at £751 (£783 in Northern Ireland) and a maximum of 20 years counts, so the most you can receive is £22,530.
- Enhanced (contractual) redundancy pay – anything your employer pays on top of the statutory amount, often based on a company policy or your contract.
Both types are treated the same way for tax: together they count towards the £30,000 tax-free limit.
The £30,000 tax-free rule
HMRC treats genuine redundancy and other non-contractual termination payments differently from normal wages. The first £30,000 of these payments is exempt from income tax, and no employee National Insurance is due on them.
A few points people often miss:
- Statutory redundancy pay uses up part of the £30,000. It isn’t a separate allowance on top.
- Non-cash benefits count too. If you keep your company car or laptop as part of the deal, its value is added to the total.
- The £30,000 is per job loss, not per year. It applies to the payments you receive from one employment ending.
What is always taxable?
These payments are treated as normal earnings. They are taxed in full and National Insurance applies, even if your total package is below £30,000:
- Payment in lieu of notice (PILON). Since April 2018, all notice pay is taxable, whether or not your contract mentions it.
- Holiday pay for leave you didn’t take.
- Bonuses and commission you earned while employed.
- Your final salary and any overtime.
- Payments your contract already entitled you to, apart from the redundancy payment itself.
This is why the amount on your final payslip can look lower than you expected: part of what you receive is taxed like ordinary pay.
How is redundancy pay above £30,000 taxed?
The part of your redundancy pay above £30,000 is added to your other income for the tax year and taxed at your usual income tax rates:
| Band (England, Wales & NI, 2026/27) | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland uses its own income tax bands, so Scottish taxpayers may pay a slightly different amount. Your Personal Allowance also starts to shrink once your income goes over £100,000.
There’s no employee National Insurance on the excess. Your employer does pay Class 1A National Insurance on it, but that doesn’t come out of your pocket.
Example: how much tax will I pay on a £60,000 redundancy?
Let’s say Emma is made redundant in the 2026/27 tax year. She has already earned £25,000 in salary this tax year, and her non-contractual redundancy payment is £60,000. For simplicity, she has no notice pay or holiday pay.
- First £30,000 of redundancy pay: tax-free
- Remaining £30,000: added to her £25,000 salary, so her taxable income for the year is £55,000
- The redundancy portion from £25,000 to £50,270 (£25,270) is taxed at 20% = £5,054
- The portion from £50,270 to £55,000 (£4,730) is taxed at 40% = £1,892
Total tax on her redundancy pay: about £6,946. Emma keeps around £53,054 of her £60,000 payment.
The same £60,000 could cost more or less tax for you, depending on how much else you earn in that tax year. Being made redundant early in the tax year, when you’ve earned less, usually means less of the excess falls into the higher-rate band. This example is for illustration only.
Watch out for emergency tax
Redundancy pay is often paid in your final pay packet or just after you leave. If it’s paid after your employer has issued your P45, it may be taxed using an emergency or basic-rate tax code, which can take too much tax.
If you think you’ve overpaid:
- Check your final payslip and P45 carefully.
- Log in to your HMRC personal tax account and look at the tax code used.
- Claim a refund from HMRC. If you start a new job, the overpayment is often corrected automatically through your new tax code.
Can you reduce the tax on redundancy pay?
The most common legal way is to ask your employer to pay some of your redundancy money above £30,000 directly into your workplace pension. Employer pension contributions are usually free of income tax and National Insurance, as long as you stay within your annual pension allowance (£60,000 for most people). It must be arranged before the payment is made, so speak to your employer early.
Timing can also matter. If you have some flexibility over when your leaving date falls, being paid at the start of a new tax year (after 6 April) can mean less of the excess is taxed at 40%. For large packages, it’s worth getting advice from a qualified tax adviser.
Frequently asked questions
Is statutory redundancy pay taxable?
No, as long as your total redundancy and termination payments are £30,000 or less. Statutory redundancy pay is capped at £22,530 from 6 April 2026, so on its own it will always fall within the tax-free limit.
Is redundancy pay tax-free?
Only the first £30,000 is tax-free. Anything above that is taxed as income, and notice pay, holiday pay and bonuses are always taxable.
Do you pay National Insurance on redundancy pay?
Not on genuine redundancy pay, even above £30,000. You do pay National Insurance on notice pay, holiday pay and any other normal earnings in your leaving package.
Do I need to declare redundancy pay on my tax return?
Usually not, because your employer deducts tax through PAYE. If you already file a Self Assessment return, you should include redundancy payments over £30,000.
Does redundancy pay affect benefits?
Redundancy pay can count as savings once you’ve received it, which may affect means-tested benefits such as Universal Credit. Check with your benefits office before you spend or move the money.
Work out your redundancy pay
Tax is only half the picture. Use our free UK redundancy pay calculator to estimate your statutory redundancy pay from your age, weekly pay and years of service. If you work outside the UK, see our severance and redundancy pay calculators for the US, Canada, Australia and New Zealand.
This article is general information, not tax or legal advice. Tax rules can change, and your situation may differ. For official guidance, see gov.uk’s pages on redundancy pay and on tax when you leave a job, or speak to a qualified adviser.
Run your own numbers
Enter your age, years of service, and weekly pay to estimate your statutory redundancy pay with the 2026/27 caps — and see how much of it you keep after tax.